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Persistent Systems
Re-iterate Buy post a strong
quarter
„Retain as preferred mid-cap IT pick
Post a strong Q4 and impressive FY12 guidance; we retain PSYS as a preferred
pick in mid-cap IT for a potential 40% upside. Growth in top accounts helped a 3%
beat to our Q4 rev estimate while wage hikes in the quarter helped bring down
employee attrition rates. Guidance of 25% organic revenue growth lends support to
our above consensus FY12 revenue estimate (backed by strength in software R&D
spends). We also expect the company to absorb profitability pressures facing many
mid-tier IT vendors and expand EBITDA margins by 100bps over FY12. Maintain
Buy with PO of Rs550 at 13xFY13E PE for a 2yr EBITDA CAGR of 34%.
Another quarter of revenue beat
Traction with top-10 clients (especially the top account) helped company post a
9% qoq revenue growth while gross margins declined 180bps (vs. our
expectations of 220bps decline) as the impact of wage hikes was partially offset
by increase in IP-based revs (gross margins of 1.5x the company avg).
Encouraging hiring trend seen in the qtr (16% increase in employee base) while
attrition rates declined qoq.
FY12: Robust revenue guidance
Company guided to a 29% growth in FY12 revs (25% on organic basis) as deal
flow and new client additions remain good, helped by partnership with global tech
vendors. Cloud computing, mobility continue to see favorable demand trends and
should help superior revenue growth for company (27% CAGR over FY11-13).
Well placed to combat margin pressures
We expect company’s EBITDA margins to expand 100bps in FY12 (guidance of
flattish margins) as billing rate hikes (1-2%), higher proportion of fresher hiring
and most importantly, increasing mix of IP-based revs should absorb impact of the
wage hikes (10% interim wage hike and ~8% annual wage hike for FY12).
Price objective basis & risk
Persistent Systems (XPSYF)
Our PO of Rs550 is set at approx13xFY13 P/E, a 5-10% premium vs. other midtier IT services vendors, justified in our view given highest EBITDA growth and
ROCE vs. peers. Exceptional jump in tax rate from 7% (FY11) to 30%(FY12)
impacts implied P/E for FY12 (16x).
Downside risks to our price objective are a slowdown in th US technology sector,
sharp appreciation of the Rupee vs. the USD and higher-than-expected wage
inflation in India.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Persistent Systems
Re-iterate Buy post a strong
quarter
„Retain as preferred mid-cap IT pick
Post a strong Q4 and impressive FY12 guidance; we retain PSYS as a preferred
pick in mid-cap IT for a potential 40% upside. Growth in top accounts helped a 3%
beat to our Q4 rev estimate while wage hikes in the quarter helped bring down
employee attrition rates. Guidance of 25% organic revenue growth lends support to
our above consensus FY12 revenue estimate (backed by strength in software R&D
spends). We also expect the company to absorb profitability pressures facing many
mid-tier IT vendors and expand EBITDA margins by 100bps over FY12. Maintain
Buy with PO of Rs550 at 13xFY13E PE for a 2yr EBITDA CAGR of 34%.
Another quarter of revenue beat
Traction with top-10 clients (especially the top account) helped company post a
9% qoq revenue growth while gross margins declined 180bps (vs. our
expectations of 220bps decline) as the impact of wage hikes was partially offset
by increase in IP-based revs (gross margins of 1.5x the company avg).
Encouraging hiring trend seen in the qtr (16% increase in employee base) while
attrition rates declined qoq.
FY12: Robust revenue guidance
Company guided to a 29% growth in FY12 revs (25% on organic basis) as deal
flow and new client additions remain good, helped by partnership with global tech
vendors. Cloud computing, mobility continue to see favorable demand trends and
should help superior revenue growth for company (27% CAGR over FY11-13).
Well placed to combat margin pressures
We expect company’s EBITDA margins to expand 100bps in FY12 (guidance of
flattish margins) as billing rate hikes (1-2%), higher proportion of fresher hiring
and most importantly, increasing mix of IP-based revs should absorb impact of the
wage hikes (10% interim wage hike and ~8% annual wage hike for FY12).
Price objective basis & risk
Persistent Systems (XPSYF)
Our PO of Rs550 is set at approx13xFY13 P/E, a 5-10% premium vs. other midtier IT services vendors, justified in our view given highest EBITDA growth and
ROCE vs. peers. Exceptional jump in tax rate from 7% (FY11) to 30%(FY12)
impacts implied P/E for FY12 (16x).
Downside risks to our price objective are a slowdown in th US technology sector,
sharp appreciation of the Rupee vs. the USD and higher-than-expected wage
inflation in India.
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